ECONOMICS

MACROECONOMICS

Balance of Trade (BOT)

By
WILL KENTON
Updated May 11, 2021
Reviewed by
MICHAEL J BOYLE

Fact checked by
YARILET PEREZ

What Is the Balance of Trade (BOT)?

Balance of trade (BOT) is the difference between the value of a country's exports and the value
of a country's imports for a given period. Balance of trade is the largest component of a
country's balance of payments (BOP). Sometimes the balance of trade between a country's
goods and the balance of trade between its services are distinguished as two separate figures.

The balance of trade is also referred to as the trade balance, the international trade balance,
commercial balance, or the net exports.

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What's the Balance of Trade?

KEY TAKEAWAYS
Balance of trade (BOT) is the difference between the value of a country's imports
and exports for a given period and is the largest component of a country's balance of
payments (BOP).
A country that imports more goods and services than it exports in terms of value has
a trade deficit while a country that exports more goods and services than it imports
has a trade surplus.
In 2019, Germany had the largest trade surplus followed by Japan and China while
the United States had the largest trade deficit, even with the ongoing trade war with
China, beating out the United Kingdom and Brazil. [1] 

Understanding the Balance of Trade (BOT)

The formula for calculating the BOT can be simplified as the total value of exports minus the
total value of its imports. Economists use the BOT to measure the relative strength of a
country's economy. A country that imports more goods and services than it exports in terms
of value has a trade deficit or a negative trade balance. Conversely, a country that exports
more goods and services than it imports has a trade surplus or a positive trade balance.

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There are countries where it is almost certain that a trade deficit will occur. For example, the
United States, where actually, a trade deficit is not a recent occurrence. In fact, the country
has had a persistent trade deficit since the 1970s. Throughout most of the 19th century, the
country also had a trade deficit (between 1800 and 1870, the United States ran a trade deficit
for all but three years). [2] Conversely, China's trade surplus has increased even as the
pandemic has reduced global trade. In July 2020, China generated a $110 billion surplus in
manufactured goods off $230 billion in exports—so even counting imported parts, China is
getting close to exporting $2 worth of manufactured goods for every manufactured good it
imports. [3] 

A trade surplus or deficit is not always a viable indicator of an economy's health, and it must
be considered in the context of the business cycle and other economic indicators. For
example, in a recession, countries prefer to export more to create jobs and demand in the
economy. In times of economic expansion, countries prefer to import more to promote price Ad
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In 2019, Germany had the largest trade surplus by current account balance. Japan was second
and China was third, in terms of the largest trade surplus. Conversely, the United States had
the largest trade deficit, even with the ongoing trade war with China, with the United Kingdom
and Brazil coming in second and third. [1] 

Calculating the Balance of Trade (BOT)

For example, the United States imported $239 billion in goods and services in August 2020 but
exported only $171.9 billion in goods and services to other countries. So, in August, the United
States had a trade balance of -$67.1 billion, or a $67.1 billion trade deficit. [4] 

A country with a large trade deficit borrows money to pay for its goods and services, while a
country with a large trade surplus lends money to deficit countries. In some cases, the trade
balance may correlate to a country's political and economic stability because it reflects the
amount of foreign investment in that country.

Debit items include imports, foreign aid, domestic spending abroad, and domestic
investments abroad. Credit items include exports, foreign spending in the domestic economy,
and foreign investments in the domestic economy. By subtracting the credit items from the
debit items, economists arrive at a trade deficit or trade surplus for a given country over the
period of a month, a quarter, or a year.

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Related Terms
Balance of Payments (BOP)
The balance of payments (BOP) is a statement of all transactions made between entities in one country
and the rest of the world over a defined period of time.
more

What Is the Current Account?

The current account records a country's imports and exports of goods and services, payments made to
foreign investors, and transfers, such as foreign aid.
more

What Is Balanced Trade?

Balanced trade is an economic model under which countries engage in reciprocal trade patterns and do
not run significant trade surpluses or deficits.
more

Bureau of Economic Analysis (BEA)

The Bureau of Economic Analysis (BEA), a division of the U.S. Department of Commerce, is responsible for
the analysis and reporting of economic data.
more

What Is a Debtor Nation?

A debtor nation has negative net investment after recording all of the financial transactions it has
completed worldwide.
more

What Is a Net Exporter?

A net exporter is a country or territory whose value of exported goods is higher than its value of imported
goods over a given period of time. more

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